On the Origin of Specie

An article in The Economist (from which I have nabbed the title of this post) argues that money, particularly coins, had to have “developed not as a private-sector attempt to minimise the costs of trading, but as a government operation.” In fact, there are many examples of private coinage. In an earlier post on George Selgin’s excellent book Good Money I wrote about private coinage in Britain:

At the dawn of the industrial revolution as workers left the fields and moved to industrial employment the demand for a means of payment increased dramatically. Workers, once paid in kind, needed to be paid in a medium they could use to buy the necessities of life. Small-tender bank notes, however, were illegal and in Great Britain the production of coin was monopolized by the Royal Mint which failed to provide enough high quality coin to meet the demands of workers and business.

The Royal Mint had neither the will nor the technology to meet demand. In a story reminiscent of the Soviet nail factory one historian explained the incentives of the Royal Mint:

The public coiner, the Royal Mint, was charged with providing a stipulated amount of coinage each year rather than a stipulated number of coins. It did not take the eighteenth-century equivalent of rocket science to figure out that it was far easier to strike, say, a thousand golden guineas than 504,000 copper halfpence (24 x 21 x 1,000). The less-than-overworked denizens of Tower Hill cheered the discovery… But even had the Royal Mint been more co-operative, more inclined to rise to the challenge presented by the new wage earners, it would have been hard-put to assist. It still relied on antiquated machinery inherited from an earlier epoch….

The private sector responded, if the public sector would not.

To meet this shortage, Birmingham button makers started to coin tokens which circulated widely as money. Counterfeits and forgeries were common, however. Frustrated with the shortage of good money, Matthew Boulton, James Watt’s business partner, hit on the idea of using Watt’s steam engine to create steam presses. The new presses could apply more force thereby creating precise edging that would be difficult to forge or clip and they could do so on a mass scale. You can read the fascinating story in Selgin’s Good Money but suffice it to say that Boulton was eventually successful in producing the best coinage the world had ever seen not only for Great Britain but also for India, Singapore, Bermuda and elsewhere. Nor was Boulton’s the only example of private coinage. See Selgin’s post at Free Banking for U.S., Japanese and other examples.

Here are some of the coins from Boulton’s Soho Mint.


"An article in The Economist (from which I have nabbed the title of this post) argues that money, particularly coins, “developed not as a private-sector attempt to minimise the costs of trading, but as a government operation.” In fact, there are many examples of private coinage"

Is that "in fact" supposed to carry the tone of "But to the contrary"? Because it's a total non-sequitur. The mere existence of private coinage tells us nothing about the origin of coinage.

I agree. When they find examples of coins in archeological digs that don't have pictures of kings or emperors on them, then we might be on point.

"When they find examples of coins in archeological digs that don’t have pictures of kings or emperors on them, then we might be on point."

No, that doesn't prove anything.

Take for example greek coins in the classic period:
Greece was divided into many city-states. Most of them issued their own coins. And generally they did NOT show a king on them.
Take Athens: being a democracy they didn't depict any kings. Instead they used symbols (the owl for instance), pictures of gods (Athena for instance), etc..

I agree it doesn't prove anything at all. A private merchant deciding to print his own coins, might well decide to put the kings picture on it in order both to curry favor and avoid looking like he's stepping out of position politically.

The very first coinage, that issued in Lydia by the king had I believe a lion and a bull on it, no portrait in sight. This was an Iron Age monarchy and a pretty shining example of what the Greek city states viewed as "Oriental Monarchy"

Well, we know very little about who used the first coins, some five to six millenia ago. Arguably the distinction between "state" and "private" is itself rather blurry in that distant past but apparently some people see a difference. So, whether nominally private actors have an incentive to independently issue and use coinage, free of compulsion (by whatever definition) toward that particular specie, is important for informed speculation about origins.

If by "origin of coinage" we mean only the first historical incidence then of course we can learn nothing from the 18th century.

But if instead you think about (for instance) who among your ancestors was first paid a wage in coins, and where did those come from... well this clearly seems interesting too. Our modern relationship to money probably owes more to this second question.

The debate is not about the literal first origin of money (which clearly predates the 18th century!) but about the process. The article argues that logically minting could not have developed privately. A single example refutes that claim. The title of the post was thus a little misleading but it was too good to pass up! I have adjusted the words in the post slightly to indicate that the argument is about what "had to have" happened.

Then the British experience is a bad example, since the copper half-penny and penny were introduced by King Charles II in the 17th century. It was only later, when the Royal Mint became lax in issuing small denominations, that private issuers began minting copper tokens. Regardless throughout the entire period, the copper penny with (ideally) a penny's worth of copper metal was state-enforced legal tender.

Your post is still slightly misleading. The Economist used "developed" to in reference to the origins of currency thousands of years ago while your example is about an innovation in currency that took place relativity recently. As David Graeber observers, modern instances of currency development don't tell us much about its historical origins:

In fact, there is good reason to believe that barter is not a particularly ancient phenomenon at all, but has only really become widespread in modern times. Certainly in most of the cases we know about, it takes place between people who are familiar with the use of money, but for one reason or another, don’t have a lot of it around. Elaborate barter systems often crop up in the wake of the collapse of national economies: most recently in Russia in the ’90s, and in Argentina around 2002, when rubles in the first case, and dollars in the second, effectively disappeared.26 Occasionally one can even find some kind of currency beginning to develop: for instance, in POW camps and many prisons, inmates have indeed been known to use cigarettes as a kind of currency, much to the delight and excitement of professional economists.27 But here too we are talking about people who grew up using money and now have to make do without it—exactly the situation “imagined” by the economics textbooks with which I began.

The Graeber extract is a non sequitur; I assume he provides evidence for his claim elsewhere, but (obviously enough) we aren't going to find many examples from the 20th century of people who barter without having used currency before, because almost everyone in the 20th century has used currency before. It doesn't speak to the claim that barter was an ancient phenomenon or that it was not.

...which is why that that is half of Graeber's two part plank to the non-existence of barter economies. The other is that you never observe them in economies without money, except in the case of long distance trade between strangers.

See his comments here, for example: http://archive.mises.org/18301/david-graebers-response-to-my-article/

Graeber has a fairly extensive review of the anthropological literature. In short, nobody has ever identified a pre-modern society that relied on barter for routine transactions within the community. And there are 20th, 19th, 18th and 17th century people who had never used currency before in the Americas, Africa, Australia and the Pacific Islands. Those are the subject of said anthropological literature review. And they don't barter.

And there are 20th, 19th, 18th and 17th century people who had never used currency before in the Americas, Africa, Australia and the Pacific Islands. Those are the subject of said anthropological literature review. And they don’t barter.

Do they trade with each other at all?

Trade isn't really the appropriate word. I've only read a small bit of the book and a few things on-line about it, but I believe the general idea is that the normal mode of economic relations in these contexts is a moral economy based around debt. Somewhat simply, one doesn't barter or purchase, one returns favors.

I welcome corrections from those who have actually gotten through more of the book itself.

Somewhat simply, one doesn’t barter or purchase, one returns favors.

So, they trade "favors". I am sorry, I have seen this debate over the Graeber book over and over and over. Whether displaced in time, or not, such a transaction is a form of barter (no one has ever claimed barter cannot be transacted by means of debt), whether or not half the trade is displaced 10 seconds, 10 minutes, 10 days etc. into the future. I mean, seriously- are we to believe that non-currency acquainted humans don't trade items face to face, ever? We had Capuchin monkeys doing it on video just the other day, for Christ's sake!

Your inability to conceive of a difference between doing favors and bartering does not persuade me of anything but your obstinance.

Not every instance of one person doing something for someone and then, at some point later in time, that someone doing something for that one person, is an instance of trade.

I gave my friend a gift for his birthday. He gave me a gift for my birthday. This was not barter. This was not an exchange. If you don't get the difference, then you need to improve your imaginative faculty.

Yancey, you are setting up the definitions of "barter" and "trade" such that your hypothesis is non-falsifiable.

The traditional story is that humans started out bartering and then, when this became to unwieldy because of the need for "double coincidence of wants," currency was invented to facilitate more trade. Graeber shows -- convincingly in my opinion -- that this story is wrong. What you are trying to do is make ad hoc modifications to the story such that "barter" consists in any favor I do for my neighbor that may or may not be returned by a favor of equivalent value at some undetermined time in the future.

If you want to define "barter" that way, you are free to do so but it ought to be noted that the definition has changed in such a way as to greatly modify the traditional story of how currency came to be.

"The traditional story is that humans started out bartering and then, when this became to unwieldy because of the need for “double coincidence of wants,” currency was invented to facilitate more trade. Graeber shows — convincingly in my opinion — that this story is wrong."

This traditional story is usually explicitly predicated on the existence of agriculture, a certain degree of population number and density, and a settled populace (traits of "civilization"). I have never seen anyone base this theory of money's origin (such as Menger, etc.) adress the methods of economic interaction of tribespeople or similarly situated peoples, who may lack the above traits, in any great detail.

Barter exchange, like monetary exchange, is principally useful among those who do not normally have some familial or other intimate connection, whereby direct decision making over acquisition and division of fruits may more readily and fairly carried out. The archeological evidence of even the most primitive forms of currency, developed independently in various places throughout the world, correlates very strongly with the factors listed above, which thrust a need on such people for some more formal means of exchange, beyond brother and cousin oaths, chieftain largess, or the other means applicable at the more intimate level (and which still apply to interactions within a family, for example). The development of these traits of civilization introduce the consequence of needing to interact with people who are basically strangers--as the number of people capable of living in proximity to each other reaches a number beyond what it is practically possible to know initimately. Incidently, the development of alternative means of organizing economic exchange is not the only consequence of this development. Given this situation, your observation that "In short, nobody has ever identified a pre-modern society that relied on barter for routine transactions within the community" is actually quite consitent with the "traditional story", i.e. in pre-modern societies (such as those possessing the criteria listed above), there is less need for indirect exchange, but they may well use barter to formalize exchange with those who are not "within the community".

Regarding POW camp/ cigarettes as currency, I was reminded of this splendid piece I read way back in college:


Also, remember One Flew Over the Cuckoo's Nest? "I bet a nickel."

You selectively edited the quote...

My quote was a verbatim repetition of the first two sentences of Alex's post, without any emendation.

Maybe you should read Alex's response, above, where he writes the following:

"I have adjusted the words in the post slightly to indicate that the argument is about what “had to have” happened."

You might want to check your paranoia.

Probably a government is conducive to using easily counterfeited money.

A government is conducive to using any money at all, since it's states which appear to have invented money to use.

Where do you see that?

We are talking about coins and coinage here. My question is why would private people need coins? Government has obvious interests in using coins. Government also has interest in stamping itself on coins. Government also has interest and capability in using some cheap fiat or semi-fiat currency and then ensuring it isn't counterfeited (or, at least isn't legally counterfeited outside of banks and treasuries).

For example, why is a gold coin better than gold not in coin form? In one way for example, divisibility it is worse.

Standardization. Less investment in scales.

True, but what cannot be done except by government. A lot of what cannot be done without government is what government decrees only they are allowed to do.

David Graeber's "Debt: The First 5,000 Years" is directly on point here. He points out that the great trading civilization of the Phoenicians relied on ingot and promissory notes for commerce. Coins first made their appearance only when the Phoenicians government found the need to pay mercenary soldiers.

I do actually address the question of the "invention" of coinage in my post responding to the Economist article. The gist is that no one knows for sure whether the first coins were made by rulers or by other persons.

In response to your idea that historians tend to disregard private money - they also tend to see money were it isn't. An example are wampums. These were used as money by European settlers - but not by native Americans. To the native americans, they were tokens of a specific social relation. Even then, they are often cited in textbooks as primitive money! http://en.wikipedia.org/wiki/Wampum


As has been pointed out before, the Soho Mint was coining pennies and half-pennies which were government-ordained legal tender. And in fact, they were doing this under a regal contract, for the supply of officially sanctioned coinage. This is not too different from the situation we have today, where a lot of printing and minting is outsourced to the likes of De La Rue plc.

Ahem. I thought von Mises had put this discussion to rest years ago

Well that's a silly thought.

Mahim: Before Soho got its government contract in 1797 it was one of about 20 private mints that coined large quantities of (mostly halfpenny) tokens for private issuers. That the government eventually hired it to strike official coins in place of the Royal Mint merely showed that it was both impressed by the private firm's relative efficiency, and anxious to begin retrieving the coinage monopoly that had been allowed for a time to lapse. Despite this effort, private coinage ended up taking off again on a large scale, though without Soho's participation, a bit more than decade later, thanks to the fact that the government mismanaged it's new Soho coinage no less badly than it had managed prior Royal Mint issues. Still after a few years the government proceeded to finally stamp private coinage out.

I haven't kept up with it, but as a kid I was a big coin collector and being a nerd read a lot of books and trade journals on that back in the 70s. In the dawn of the U.S. when the federal government was charged with producing coins, my recollection was that anyone could take gold or silver to the U.S. Mint and they would turn it into U.S. coins based on the weight of what you brought in. Thus, private businesses could easily create whatever coinage they wanted, thus combining the official nature of government money with the flexibility of the private sector. Maybe Selgin covers that in his book, which sounds quite interesting.

This was the original purpose of mints, wasn't it? Turning metal into coins was done to standardize and certify the weight of metal involved. A mint had to do something complictaed enough to be difficult to counterfeit, and had to be regarded as trustworthy, so it was not suspected of counterfeiting its own coins by using mixing in less valuable metals.

That's what I always thought, anyway.

One of the main reasons why Soho prevailed and eventually got the contract to strike regal copper was the consistent enterprise of its proprietor, Matthew Boulton. Boulton's push (and his contacts within and outside the charmed circle of the British Government) were greatly superior to those of any of his competitors. The fact that his wares, both commercial tokens and official coins, had a polish and consistency about them that other makers could not or chose not to emulate gives us the rest of the answer as to why Soho was chosen to strike the 'Cartwheel' and later issues for England and Ireland. In time, the firm would be selected to refurbish the Royal Mint itself.

Has marginal revolution discussed Graeber at all. I would be interested to get a smart libertarian view of a smart anarchist. Graeber's theory about the link between monetary systems and government institutions could be interesting fodder.

Is this relevant any more? Would anyone want to hold currency floated by Microsoft or General Electric? Surely state backing is essential to the confidence one holds in a medium of exchange, store of value and unit of measurement.

lol, blah is very funny.

States have backed lots and lots of failed currencies. How essential are they?

Why do currencies fail?

I am asking you. You claimed governments are essential, but almost all state backed currencies have failed historically, so I am not really seeing the essentialness that you claimed.

Currencies fail mostly because people stop believing it has value, which usually more often than not is a result of poor governance. That's my theory anyway.

Does this mean government is unimportant? Of course it doesn't. So I don't understand your argument.

How much of big corporations is because currency adds to transaction costs?

State backing isn't absolutely necessary. The essential requirement for any money is the belief that the possessor can receive the same amount for it (in goods or services) as he or she paid for it (in goods or services). That said, it's perfectly possible to have a circulating currency backed by the faith in a private issuer - in fact, that's exactly what took place during the dawn of the copper token era in eighteenth-century Great Britain.

Thank you for not being sarcastic like the others.

I agree with what you say, but I question the relevance of this in our present day. I am no expert in the monetary history of England, but I'd be very surprised if the Crown didn't have something to say about the faith in a private issuer.

Microsoft or General Electric?

How about Bank of America or JP Morgan? How different is cash/coins from bonds and travelers checks or credit cards even?

In the last few years there were times when corporations were able to issue debt at a lower yield than the US government bonds.

The stability of some currencies over the last century is an anomaly. The US dollar has been used as a store for value because of the instability of other currencies. From recent memory the currency that I use has changed value from 56 cents to the US dollar to $1.10, and $100 denominations have been essentially worthless as means of exchange, being informed on entering a shop that they do not accept them.

It is very easy to forget because of having experienced stability for so long that the currency only has value because everyone believes it does. A corporation would only need to issue a currency if the US treasury has so mismanaged it's affairs that it's issue is not trusted.

These guys came up with a steam press to turn metal into coins. The coins were then circulated, and the government apparently didn't do anything about it despite being aware of its existence.

So if I came up with a special printer in my basement to turn paper into perfect replicas of dollars, and circulated these dollars, and then the government didn't send SWAT teams or Predator drones at my house despite being aware of my activities, does this mean that what I'm doing isn't a "government operation"? It would seem that I am now effectively a government contractor and what I'm doing is indeed a "government operation".

Their copper coins were redeemable (in sufficiently large quantity) for gold, so they depended on how much you trusted the issuer rather than the government (many were trusted enough to profit off seignorage), it was only relatively late that the government endorsed a private coiner (that was the the original intention of a couple of them). And they weren't "perfect replicas" of existing coins, the Royal Mint tended to make low quality coins which were easily counterfeited. There was a huge variety of private coinage whose artwork partially served as advertisements for various business, and also made them collectibles (in one of Selgin's talks he shows coins whose artwork/logo mocks the holder for collecting them!).


So if I came up with a special printer in my basement to turn paper into imperfect replicas of dollars, and then they circulated as money, and then the government didn’t send SWAT teams or Predator drones at my house despite being aware of my activities, does this mean that what I’m doing isn’t a “government operation”?

Once again, they were not "imperfect replicas". They actually tended to have higher quality engraving than the Royal Mint and were very distinctive NOT REPLICAS. And of course if you started creating your own private money, or if the Liberty Dollars guy had not been arrested, of course that would not be a government operation! The government has no involvement! It's a crazy world where everything must be expressly permitted by the government and assumed to have its backing. You could as well claim that if the government hasn't arrested McDonalds for selling burgers, they must be a government operation! Or, since burgers are too perishable to circulate, a manufacturer of collectible cards.

Right. The "private coins" weren't counterfeits: their unique (and often very pretty) engravings and legends made that perfectly clear. So the attempt to "define away" private coinage won't fly. But to give him his due, Milton Friedman once also equated private note issue with counterfeiting. Friedman later realized his mistake, so there's hope for you too, Pat!

So if I came up with a special printer in my basement to turn paper into dollars with unique, pretty pictures and designs, and then they circulated as money, and then the government didn’t send SWAT teams or Predator drones at my house despite being aware of my activities, does this mean that what I’m doing isn’t a “government operation”?

Why does your currency have to mimic the US dollars. Oh yeah that's right because nobody is going to be willing to use it if its value isn't assured. We can't be sure that it is worth anything unlike the dollars backed by the US economy.

so they depended on how much you trusted the issuer rather than the government

If government enforcement didn't matter and it was just about trusting the guy with the steam press making coins, why wouldn't I just kill him, take his press, make the coins for myself?

Really, Pat, you are trying to argue that what actually happened couldn't possible have happened. For that reason your question doesn't much merit a reply. But just to be nice: the coins weren't issued by the mints; they were made for other issuers, who offered to redeem them like so many banknotes. If you wanted to order or make your own, you would have been as entitled to do so as anyone. But you then would have had to command confidence in your offer to redeem the coins, or your coins would have become so many paper weights that you wasted your resources on.

No, George. I'm just interpreting what actually happened differently. I agree that these guys with the steam presses actually coined their own coins which then circulated as money. You conclude from this that government isn't involved. I disagree. I think government is involved here.

Of course the British government was "involved" in private coinage in the trivial sense that it didn't immediately crack down on it. (It ultimately did so after 1814.) But surely to insist that the government is "involved" in some activity, let alone that that activity is really a "government operation" (as you put it earlier) merely because the government doesn't suppress it is to make every undertaking anywhere where government of some sort is present a "government operation," and thus rule out the very possibility of a "private operation,": or of what's usually called "private enterprise," except perhaps in a state of anarchy.

This is indeed one way to reach a different conclusion than others might reach about either the extent to which government "involvement" in this or that undertaking is either necessary or desirable. But I submit that it is an exceedingly unhelpful one--and that I think is being charitable.


Is the only reason you don't kill everyone you see for their Pumas because of government enforcement?

That's "trivial"? I assure you George, if someone were printing their own dollars that were circulating as money and this were tolerated by the gov't and not immediately shut down, this behavior on the part of the gov't would not be regarded as "trivial".

And yes, government is always involved because every piece of wealth in society, be it gold, land, or a corner grocery store, is valuable to degrees varying with their “monopoly” status as property rights, which are provided by the government.

Even in private operations and exchange in a "state of anarchy", government is involved. The individuals, clans, tribes, etc. are sovereign and are or have their own governments.

I am going to go to New York City and create and sell police services. I will call it the Gotham Police Dept. (GPD). The GPD cops will have real sexy uniforms - tight leather and huge cod pieces. NYC's large gay population will love seeing these studs strut down the streets on the beat. These studs might end up patrolling the streets alongside the NYPD, or they might not. If they did, it would not mean that government is not involved. It would mean that Bloomberg didn't shut them down.

What if Bloomberg didn't have the means to shut them down? Good heavens, the assumptions in your comment are sweet and nice, but so little connected to the world outside of your experience.

It is said that for a period of time you were told not to pull over if a police car signalled you to stop if you were driving into New Orleans. Very likely you were about to be shaken down for a small fee and better not to stop. Do you not imagine circumstances where the authority of the police is a meaningless fiction? It wasn't so long ago that many cities in the US were like that, and in fact private 'police' were organized to look after the security of the inhabitants. Many cities in Europe have no go zones where the police dare not enter. Replace Bloomberg with Koch and you wouldn't be far off. Koch wouldn't permit it. Heh. That would have gotten a good laugh at the time.

With the economic collapse that is more and more the case. There aren't resources to police, essentially the authorities sphere of influence shrinks as they provide no benefit to the people, only want to draw more resources away to support the various institutions that have failed. People get by, they manage somehow. If someone works, doesn't want to use the official currency for various reasons, they end up exchanging value by some means. For a long time that means was the US dollar, and still is.

What if Bloomberg didn’t have the means to shut them down?

That means there's a new sheriff in town.

In Bruce Benson's "The Enterprise of Law" he notes that there are more private security workers (which includes some whose job entails neighborhood patrol) than government cops. That was from around 1990, I don't know what the figures are today.

@Pat, I see a big difference in these examples. In the case of private police, private firms would be making arrests, etc. With private money, people are just using them to negotiate voluntary transactions.

People are voluntarily purchasing the police services of the GPD to enforce the laws such as arresting murderers.

Pat, you don't know your history. Many private firms have issued their own circulating notes, and for long stretches none other than such notes were many countries' only paper currency. You may still find such private currency in Scotland, Hong Kong, and Northern Ireland. But I've seen enough of your manner of argument and point this out not to elicit another reply like the others, to which I won't bother to respond, but for the sake of followers of this thread who may also not be aware of the historical prominence of private paper monies.

George, I'm fully aware that private firms have issued their own notes in the past. I'm also aware that HSBC and other banks in Hong Kong currently issue their own currency. I've already made this clear and pointed out that I interpret these facts differently.

If the CCP decides tomorrow that only the PBOC will issue currency for Hong Kong, what is HSBC going to do? Are they going to send you and copies of your books over to Peking? Are you going to shout passages from your books at the PLA while they run you over in a tank?

I think Arnold Kling has been trying to push the thesis that money started to ease taxation for many years.

Why this obsession with coins. Before about 1850, local 'Menger like' village economies used credit, not coins, to trade. Small debts at the shoemaker, blacksmith, bakery, whatever. Wages were sometimes only paid after two or three years, according to the survinving accounts.These debts were OF COURSE a kind of private money, created at will by a buyer and a seller, and were used to pay (somebody who bought shoes on credit could sell these shoes - debts were accepted as a means of payment (not in the case of taxes, by the way)) though these debts were always administered in the going unit of account. Coins are just one kind of money - and surely not the first kind which existed. They came in handy, when people did not know eacht other, though many of the coins used were of course not noted in the general 'unit of account', it was normal for (somewhat richer) people to own a bewildering variety of coins - which, in probate inventories, are valued in the general 'unit of account'. Which means that the 'unit of account' often wasn't a material thing but an accounting abstraction. The whole discussion reminds me of Saint Augustin, who (with all his brilliance, read the guy) before he converted to christianity had severe problems to understand that sin could be a perversion of the will or an act, instead of something physical as he was lead to believe by his previous manichean ideas. Anyway - accounting surely preceded coins.

Fun fact about money: Diogenes, the Greek philosopher still famous for his disdain for 'social contrivances', was expelled from his city of birth because he and his father (who was a minter of coins) embezzled the money... Some of these coins are actually found by archeologists!

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